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Ken Rogoff’s Chart of the Year

The blue line is global average of public debt relative to GDP. The yellow bars denote the percent of countries in a state of default or restructuring on external debt. The dark pink bars that sometimes rise above the percent of countries in default or restructuring denotes countries with inflation over 20%. The chart suggests that if the historical pattern is followed, there will be soon a wave of sovereign defaults. Needless to say, we appear to be on the cusp of such an event in the eurozone and central Europe, and possibly some countries elsewhere.

11 thoughts on “Ken Rogoff’s Chart of the Year”

Germany’s Weimar republic defaulted on its oligations under the Treaty Of Versailles, and the French occupied the Ruhr Valley.

Why would’t a Creditor nation occupy a debtor nation?

This implies that to avoid war, debt must be forgiven. If debt is forgiven by compulsion through threat of sanctions e.g. UN saying to China, sorry your are not to be repaid; would China lend in future?

How will governments finance their deficits?

I am sorry, but I am in Cash and Farm land assets untill I can see a way out of this mess.

That’s interesting about debt forgiveness and Christianity. Hmm, I see that the US’s 2 largest creditors (besides its own citizens) are China and Japan. Bummer for the US.

By the way, the Europeans seems to be in a better default position, on the face of it. Since the all co-habitate the same landmass, there seems to be a natural potential swap debts with neighbors. (Maybe this is foolish to suggest, but I’d like to anyway!)

What I mean is, lets say the French States owes 100 billion euros to Italian citizens. And the Italian State owes 100 billion to French citizens. The debts could be swapped, so that the French State can surrender some of its public land to its own French citizens as a default solution. And the Italian State can surrender some of its public land to its own Italian citizens as a default solution. Since much of the debts seems to be between EU States, this surrender of public land to its citizens would be more palatable than surrendering public land and/or stock in privatized industry to citizens of *another* nation. (Of course, debts are not equal, but to the point that they are this could occur… so its only a start).

The same can’t be said for US and its creditors/debtors. Then again, what debtors? So, not only does the US have no debt to swap, but it is not neighbors or historically linked with its creditors, so I don’t see there being room for such creative solutions.

I personally believe that America would induce China to start a proxy war, lose it, and forgive American debt as an obligation for the war – just like what they did in the Versailles Treaty after WWI. (A war on the Korean Peninsula seems likely, although China knows it can’t win a war against S Korea, Japan and the US troops there combined. A proxy war at Iran or Pakistan would also be feasible.) If this scenario comes true it would be interesting to watch whether China gets into America’s trap and start a war or not. We shall see.

China’s wild card is that it seems a whole lot of recent American military hardware was manufactured in China. The drone incident seems to suggest Iran were given a back door, hacked into the drone and landed it.

If America has to discard most military hardware it has added since the mid-1990s, they will struggle, wherever the front is. Iran and Pakistan are the likeliest locations.

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